The steady stream of new listings on the New Zealand Stock Exchange in recent months has been fascinating to watch; the behaviours of the participants especially so. Stock markets are, by their very nature, bastions of capitalism; a central place for sellers and buyers to trade stocks in the pursuit of personal or corporate wealth. The New Zealand market is no exception.

The New Zealand market is operated by NZX Limited, itself a publicly traded stock. Yesterday, when NZX reported its six-month result ($7m profit on $31.2m revenue), the CEO touted for more listings. This should not be surprising, as more participants means more revenues. High company performance is generally recognised as being good, because important economic and societal benefits flow from high company performance—as long as the profits stay in the system. Yet when one looks under the covers, a large portion of the profits being generated by NZX may actually be leaving the system.

The largest NZX shareholder (39%) is New Zealand Central Securities Nominees Limited, a trading company owned by the Reserve Bank of New Zealand. This means nearly 40% of all dividends paid by NZX go to the government; they leave the system. Is this good? Rather than an exchange that generates large profits—much of which end up in the governments coffers—wouldn't the market be better served by one that operates on a cost-recovery basis, whereby all participants pay a recovery levy to play? Given NZX's inherent efficiency, fees could be reduced by 22% without difficulty. This would leave more money in the hands of the participating companies—where it is most needed to grow and develop the economy. Such an approach seems to be more conducive to capitalist ideals and, importantly, improved societal wellbeing don't you think?

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Musings

Thoughts on corporate governance, strategy and effective board practice; our place in the world; and, other things that catch my attention.